Proposed Consumer Financial Protection Agency May Oversee FDCPA Enforcement

Industries that must adhere to the Fair Debt Collections Practices Act (FDCPA) may soon have a new federal regulator. The Obama administration is recommending that the Federal Trade Commission (FTC) turn enforcement of laws that protect consumers over to a new Consumer Financial Protection Agency, the cornerstone of recently-announced regulatory changes in the financial sector.  

The regulatory shift would include FDCPA enforcement, impacting all debt buyers and collections agencies, according to consumer advocates familiar with the plan.  

The White House says the agency, if created by federal lawmakers, will have broad authority to regulate products such as mortgages, credit cards, and other consumer financial products and regulate all providers of consumer financial products and services.

Among other things, the new agency will be responsible for:

• promoting concise and clear information for consumers
• protecting consumers from unfair and deceptive practices 
• promoting fair, efficient, and innovative financial services markets for consumers 
• improving access to financial services

At least six consumer advocate groups support the creation of the new agency as the primary consumer protection czar.

“It will have more authority and more power in many ways than the FTC because it will have only one job and that’s enforcing consumer laws,” said Ed Mierzwinski, consumer program director of U.S. PIRG.

Currently at least seven federal regulatory agencies are responsible for protecting consumers in the financial services marketplace. Five of the agencies also oversee financial institutions. To fund the Consumer Finance Protection Agency, the Obama Administration has recommended that the Office of Thrift Supervision be eliminated and its duties transferred to other agencies. Other regulatory agencies will also be affected.

Congress must approve the creation of the new agency. A bill introduced by Rep. Bill Delahunt (D-Mass.) to create and fund the agency is currently before the House Financial Services Committee. The committee held its first hearing on the bill Wednesday.

Mierzwinki, who testified Wednesday before the committee, said the FTC has a lot of competing responsibilities, including enforcing rules for children’s television programming, evaluating mergers and regulating violations of the Do Not Call List. He said the new agency will eliminate the conflict of interest some agencies face when trying to ensure the safety and soundness of a financial institution.

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David John, a senior fellow of economics with the Heritage Foundation, said the government agencies that could be affected won’t give up their duties without a fight. Likewise, businesses and any other entity affected will lobby their lawmakers to reject or restrict the duties of the new agency.

“Every time a new agency is created that takes over parts of an old agency, there is resistance from the agency and the constitute groups affected,” noted John.

During testimony before the Congressional Financial Services Committee Wednesday, ABA president and chief executive officer Edward L. Yingling said that the banking industry fully supports effective consumer protection, but that creating a new consumer regulatory agency is not the solution to the current economic problems.

“Making improvements under the existing regulatory structures – particularly aimed at filling the gaps of regulation and supervision of nonbank financial providers – is likely to be quicker and more successful than a separate consumer regulator,” he said.

Adam Peterman, ACA International’s government affairs director, said the association isn’t necessarily opposed to having a new regulator, but it will await legislative language about how the agency will be composed and operated.  He expects a bill outlining operational details to be introduced in late July.  

Regardless of who provides regulation under the FDCPA, Peterman said the association should try to get Congress to modernize the laws governing the ARM industry to address its ability to keep up with technology and communicate with debtors by mobile phones, email, and text messaging.

DBA International –- a trade group that represents debt buyers — told insideARM that the debt purchasing industry should not be grouped in with the new legislative proposals.

“Debt buyers are the only financial institutions which do not actually extend credit, therefore they should be separately addressed,” said Barbara Sinsley, general counsel for DBA International.

DBA International Board member Stacey Schacter added, “Too much regulation in an already heavily regulated industry will result in lost jobs and the states will lose a tax base. I am concerned that this initiative will not actually address the real consumer issues.”

John, however, said there’s a strong chance that the new agency will be created and businesses that will fall under its governance should prepare for change.

“For better or worse, a company can assume that change is coming.  And change is always expensive and disruptive,” John said. “That’s true whether you’re talking about buying a new house, starting a new job or dealing with a new regulatory agency.”